Responsive Industrial Relations: Where HR Meets IR

 [My address at the Second National IR Summit ‘Towards Sustainable Industrial Relations’ on May 16, 2014]


In this summit, the session theme is “Framework for Responsive Industrial Relations.”  The purpose of any seminar is to examine and debate some ideas and thoughts which lead to greater understanding and progress. I am going to present a few for your consideration. And we will move from ideas and thoughts which are at transactional level to those at transformational level. My submission is that great possibilities exist to do work at both transactional and transformational level.

The session theme is ‘Responsive Industrial Relations.’ The catchword is ‘responsive. We will see [a] how parties are meeting each other’s expectations, [b] how those expectations are shaped by social and economic circumstances, and [c] How can we create responsive industrial relations?

Expectations of parties determine employee relationship:
Let us look at the subject. It is industrial relations – it is not industrial disputes. And in every relationship there are expectations from each other. Things start getting messy when the expectations are not met.
Organisations expect their employees to show commitment and dedication, they expect working at high productivity level.

Employees on the other hand expect four things from their employer; these are: Individual Growth, Bright future, Positive Workplace and Fair compensation practices.

The problem is that in all relationships there is so much in the unsaid area. That is what really causes problems, because it is in the area of fear. What you are afraid of you are reluctant to speak about. Communication and Influencing is therefore very important aspects of industrial relations like any other relations. I know of some very renowned companies which have regular ‘open house’ meetings. Not just with white collar workers but also with blue collar workers. When Godrej Industries shifted their well-established factory at Vikhroli in Mumbai to Ambernath, about 50 Km away, they extensively and used this forum of Open House to communicate with workers. They shifted their factory without a glitch. This trend is very welcome.

The experience is that with the formation of unions there is complete breakdown of communication, and influencing happens only thru use of power, both are so counter-productive for healthy relationship. The recent strikes in Bajaj Auto are example to cite. Forget what you read in the newspapers. The real issues are different. The parties are engaged in a power game. I have blogged about it in my blog post ‘The Snake and the mongoose: The Story of Bajaj Auto Strike.’

Are expectations getting managed better? I cannot make a general statement. I can however say that many companies have spotted opportunity posed by weak unions, or no unions and they are going an extra mile to listen. The Godrej example is not solitary. There are many organisations which have instituted practices to understand expectations as well as convey concerns.

Expectations and responses are fuelled by social and economic changes: Employees have higher expectations of quality of life and Employers have higher expectations of flexibility
Let us look at social changes. The economic policy changes took place in 1990. When I asked what changes in the lifestyle of workers we have seen since then, here are the answers I have received:

·        The education levels have changed for better.
·        Most of the workers own a two wheeler.
·        They have a TV at home and also own a mobile.
·        They wear branded clothes, their children attend tuition classes
·        Some of them also take a vacation using tour operators within India.
·        I know some workers whose sons are placed abroad by the IT companies, they have visited USA.
·        I met a union leader in Pune who researched my profile on the internet and LinkedIn before meeting me!
·        Wives are employed; workers have seen the need to have a double income.

What impact is it having on the aspirations of workers? Higher wages. The Bajaj Auto Union did a survey very systematically and has launched an initiative to help employees’ wives to be gainfully employed.

So perhaps higher living standard is the expectation. But there is a catch here. If you take a look at absolute level, the wages in reputed organisations might seem good. People who are paid well, experience a sense of deprivation when they feel that others are getting paid disproportionately higher. I have been talking to workers and I beg to submit that this feeling is getting stronger. Remember people want to be paid fairly, and people’s concept of fairness is based on comparisons. Now let us check what is the proportion of min to max salary, in other words, the ratio of an unskilled worker’s salary to that of MD’s.

Here is the data.
Today a worker’s CTC is about 3 L pa and MD’s is about Rs 5.50 Cr in a medium size company. That makes it 183 times. So we know that organisations are sharing prosperity disproportionately.

Peter Drucker said the ratio should be 20. Switzerland wanted to make a law and it was proposed to have min-max differential at 12. Incidentally, this proposal never got approved. Our own Bhoothalingam committee recommended a ratio of 16. Research of David Francis points out that the differential among top US Corporations was 42 in 1980 and 379 in 2007.

And we have a ratio of over 200! This points out to increasing inequality. And that is a landmine. Things can explode anytime.

Let me now talk of some developments and some innovative work in this area.
The settlements at Pune in recent times have given a pay rise of Rs 8 thousand plus to workers. There is a greater recognition that variable pay will play important part of a worker’s CTC.

And here is the gem: A company called Polyhydron has done wonders. I wish to quote Polyhydron. I will read out the statement made on their website.

“A transparent system of wealth generation and a link of compensation to employees ensure that the employees earn their wages and need not be paid. [My note: That’s a deep statement:” employees earn their wages and need not be paid”]. This system makes the employees responsible for their returns and in turn improves wealth generated per employee. It promotes multiple skill, reduces total manpower requirement. Polyhydron has established wealth-sharing scheme. It ensures 30% of the wealth generated gets distributed.” 

On the other hand, organisations insist that workmen and unions have to be sensitive to the changes in the economic scenario because there is now fierce competition. The competition is also with International players. This means changes will have to be implemented fast and quick, without much fuss. The employers have been demanding ‘flexibility’ from workers and unions. If you see the settlements, we see long clauses not just of multi-skilling but also of authority of deploying workers on any job. Permit me to read out this clause from the settlement of Bajaj Auto in Pantnagar. It will convey not just my point well, but it will also convey the anxiety of the organisations in ensuring flexibility.

The Representative of the employees recognizes the following rights of the Management:

(a)   The Management has the right to set and revises the standards for jobs (time standards), production and quality, to effect technological development, to introduce new or improve products, production, methods and systems, rationalization, standardization, or improvement of plant or techniques, which may lead to increase / reduction of manpower including covenanted employee or to be employed in any occupation / trade / department or shift. It also has a right to decide upon production, quality and cost target, recruitment, promotion, deployment, allotments of shifts, working hours, timing of shifts, holidays, weekly offs, over times (following the statutory norms) and permanent / temporary transfer of employee from one job / section /department /division to another as the case may be and from one plant to another plant situated anywhere in country.

The power is unbridled, but this long all inclusive clause only goes to show the anxiety of the organisation in ensuring flexibility.

My understanding is that this is partly the response to India’s archaic labour laws which inhibit introduction of changes. No organisation can survive today without making quick changes to various aspects of production.
The excessive and indiscriminate use of contract labour in the industry is the result of this drive for flexibility. In Pune belt, there is indiscriminate use of trainees as well. Take a look at some statistics.

At Pune, Fiat reportedly employs 330 permanent workers, 700 trainees, 700 temporary workers, and 800 contract workers. Bosch employs 235 permanent workers, 400 trainees and 150 contract workers. Mahindras employ 1800 permanent workers, 700 trainees, 250 temporary workers and 1200 contract workers. These details are already put on my HR blog. See my blog post ‘Training to Exploit.’

I am not making any judgement at this stage; I am just placing facts for your consideration.

The point I was making is that expectations and responses of parties in Employee Relations is shaped by social and economic changes. And in healthy relations you take a note of these expectations, and strike a compromise.

We now move to our next point.

How can we create responsive industrial relations?
The opportunity today is creating a seamless organisation where all employees are integrated well. This will create higher quality of life both at work as well at home and a vibrant organisation sensitive and willing to adopt itself to challenges of times. That is the challenge and opportunity. Is this happening? What are the signs and what should be done?

Yes, it is happening. And here are the signs.
The workers, who were more or less regarded as a pair of hands a few decades ago, are now participating in certain activities that go to improve not just products but also their experience of working in an organisation. These activities are common everywhere now – like TPM, TQM, Quality circles, Small group activity, Kaizen, 5S and so on. The employees are being managed with HRM practices. The HRM policies and practices are essentially individualistic, and they focus on integration, worker commitment, efficiency, innovation and quality.

Do you notice that the nature of ER is changing? The point I am making is that workers are being managed increasingly as individuals and not as a part of a collective.

Now they say that HRM provides governance standards to ER. And this trend is everywhere.

But ER is not entirely individualistic. There is a role for the Government to play but it is atrophied. So organisations are substituting. They are declaring policies. You must tell people what you stand for. And also what you do not stand for.

Volkswagen has come out with ‘Declaration of social rights and industrial relations.’ The declaration of Volkswagen spells out their IR philosophy clearly. SKF, Nestle have a very well spelt out ER policy. But nothing beats Toyota [as seen in the book Toyota Culture] and Southwest Airlines. These are exceptionally mature approaches to employee relations.

This is what Toyota says:
Managing Toyota Way and establishing a Toyota culture is not negotiable. 
The local management should establish a stance toward labour unions, taking into consideration local culture, laws, labour movements and so on. 
If the management of the company does have a union, both should recognise that the prosperity of the company is the common objective and both must use thorough communication in order to resolve any differences of opinions and build a healthy relationship of mutual trust.
The relationship of mutual trust can ensure the long term prosperity of the company and thereby stabilise employee lives by maintaining and improving working conditions.

The trend is to take Human Rights approach. That is what Volkswagen has done. Recently HUL declared that they will take the Human Rights approach to employee relations. ITC’s policies are similar but they are part of a bigger statement.

Needless to say, that when you make a policy statement you declare your own governance standards to the world. You can be held accountable for it. Volkswagen does not employ contract labour in their manufacturing process unlike so many others in the auto industry; it does not come as a surprise. Values and vision which were sorely missing from the ER scene are returning. That is a healthy trend.

British Petroleum’s step in ER is the transformational step in every way. The BP Union and BP created a shared vision of ER and signed a joint statement. That was way back in 1999!

In other words, organisations are telling what rules they will abide by – and that is a big commitment. If we focus on organisations which are trying to foster responsive industrial relations, we see that they are increasingly listening to employees, having dialogue about issues; these organisations are sensitive about economic and social changes. And against this background they are articulating their policies and vision. The next step can only be to practice greater democratic way of managing people. This is essential for creating responsive industrial relations.

For a visionary leader it is an open canvas today. That is the big opportunity.   

Vivek S Patwardhan